Facebook share price under pressure amid bearish earnings forecasts

With Wall Street analysts forecasting Meta Platforms [FB] to report a slowdown in earnings growth in its upcoming results for the fourth quarter (Q4), the Facebook share price has been put under pressure.

Analysts polled by Zacks Investment Research forecast the social media behemoth to report a 2.6% year-over-year drop in earnings to $3.78 per share when it announces results on 2 February. However, analysts are also targeting a consensus 17.7% rise in year-over-year revenues to $33bn.

The slowdown in earnings is partly due to Apple [APPL] changing its iOS privacy features last year to require explicit permission to collect and share data. The knock-on effect has hurt the targeted advertising that is so crucial to Facebook.

And although investors are excited by the long-term potential of the metaverse for gaming, communications and ecommerce, they have been wary of the price tag involved. Indeed, Meta’s operating profits have been slashed by continued investment in its Future Reality Labs arm, which it spent $10bn on in 2021. 

Facebook share price trends downwards

If Meta were to post earnings in line with analyst predictions, the Facebook share price could continue to pull back as it would mark a continued downtrend in performance. The company reported revenue growth of 35% in Q3, which marked a slowdown from the 56% posted in Q2.

However, despite these difficulties, the Facebook stock price has risen 21.2% over the past 12 months. The Meta share price had hit a high of around $382 in early September but has been on a downward spiral since. The Meta stock fell 6.8% throughout January to sit at $313.26 at the close.

Aside from advertising revenue pressure, concerns over the group’s ethics and investments in the metaverse, another factor weighing on the FB share price has been the switch in the market from growth to value amid higher inflation and potential interest rate hikes.

In comparison to rival Twitter [TWTR], which has fallen 25.8% over the past 12 months, the FB stock price has outpaced its peer. However, the stock has underperformed compared with Alphabet's [GOOGL] 48.1% rise in the same period.

Q3 revenue falls short of expectations

In Q3, Meta reported revenues of $29.01bn, which missed analysts’ forecasts of $29.57bn. However, earnings of $3.22 per share did beat the expected $3.19.

Key to that performance was Facebook’s daily active users, which grew 6% year-over-year to total 1.93 billion. On a monthly basis, it captured 2.91 billion active users, which was also up 6% from the year-ago quarter. However, its average revenue per user came in at $10 – lower than the forecasted $10.15.

Facebook founder and CEO Mark Zuckerberg (pictured) was optimistic after the results, saying that he was excited for the company’s roadmap, “especially around creators, commerce and helping to build the metaverse”.

The FB share price reflected this positive outlook, rising by 4.3% in the fortnight after the results were announced on 25 October.

Analysts forecast gains for the Facebook stock

Looking ahead to Q4, analysts believe that Meta could continue to benefit from steady user growth. Zacks Investment Research expects to see this growth across all regions, particularly in the Asia-Pacific, and sees increased engagement for Instagram, WhatsApp, Messenger and Facebook Watch.

The research firm also doesn’t expect Meta’s advertising revenues to be too heavily impacted by Apple’s privacy changes as it believes it will have been boosted by the ongoing shift to ecommerce.

Indeed, OTR Global analysts upgraded its rating on the Meta stock to ‘positive’ based on “solid” ad spend growth in Q4, helped by strong seasonal demand. On the other hand, RBC Capital lowered its price to $400 from $415 because of “mixed” overall ad spending trends.

Facebook’s earnings are also likely to have dipped due to the group ramping up investment in the metaverse. This includes its Oculus division, which makes virtual reality headsets, and the AI Research SuperCluster, the AI supercomputer that it hopes will power the metaverse.

Despite the mixed outlook, analysts have a consensus ‘buy’ rating on the FB share price and a $402.04 price target, according to MarketScreener.